HMRC has set out how the points-based penalty system due to replace the current late-filing regime for Making Tax Digital for Income Tax Self Assessment (MTD ITSA) will operate, as separate daily and tax-geared penalties continue to build on 2024/25 Self Assessment returns that remain unfiled. The two regimes are running in parallel this year, and accountants say the overlap is catching some clients by surprise.
Daily penalties now compounding for late 2024/25 returns
Anyone who has not yet filed their 2024/25 Self Assessment return has already passed several penalty thresholds. The initial £100 fixed penalty applied from the 31 January 2026 filing deadline. Daily penalties of £10 began accruing from 1 May 2026 and run for up to 90 days, adding as much as £900 to the bill. A return still outstanding on 1 August 2026 triggers a further penalty of whichever is higher: £300, or 5% of the tax due — charged on top of everything already accrued, not instead of it.
HMRC has not published a fresh statistic for how many 2024/25 returns remain outstanding at this later stage, but the pattern in previous years has been that a five-figure number of taxpayers reach the August threshold each cycle. Interest continues to run on any unpaid tax throughout, separately from the penalties for late filing.
How the points-based system will work
The points-based regime is designed for MTD ITSA, where taxpayers file quarterly updates rather than a single annual return, and a single missed submission would otherwise trigger a disproportionate fixed penalty four times a year. Instead of an automatic fine for each late submission, a taxpayer accumulates one point per missed deadline. A financial penalty of £200 is charged only once the relevant threshold is reached.
- Annual filers: two points trigger the £200 penalty.
- Quarterly filers (the frequency used under MTD ITSA): four points trigger the £200 penalty.
- Each subsequent late submission after the threshold is reached triggers a further £200 penalty.
- Points expire automatically after 24 months of on-time submissions, provided the penalty threshold was never breached.
- Where the threshold was breached, points only reset once all submissions have been made on time for 24 consecutive months (annual filers) or 12 consecutive months (quarterly filers), and every submission due in the preceding 24 months has actually reached HMRC.
A separate, existing penalty regime continues to apply to late payment of tax itself, calculated as a percentage of the amount outstanding and unaffected by the points total.
Soft landing for the first MTD ITSA cohort
Sole traders and landlords with qualifying income above £50,000 became the first group mandated into MTD ITSA in April 2026. HMRC confirmed that this first cohort will not receive penalty points for late submission of their first four quarterly updates — a transitional easement intended to give businesses time to adjust to quarterly reporting before penalties start counting against them.
The easement does not extend to the end-of-year tax return itself. A taxpayer in the first cohort who files their 2026/27 quarterly updates on time but misses the final return will still receive a penalty point on that submission, and can still reach the threshold from a single missed deadline if points from unpaid tax or previous years are already on the record. HMRC has also confirmed that the soft landing applies only to this first mandated group; sole traders and landlords due to join from April 2027, when the qualifying income threshold drops to £30,000, will not receive the same easement on their first quarterly updates.
Timeline for wider rollout
The points-based system already applies in principle to anyone who has voluntarily joined MTD ITSA for 2024/25 or 2025/26. It becomes mandatory for the income-over-£50,000 cohort from April 2026, extends to the income-over-£30,000 group from April 2027, and is scheduled to apply to all remaining Self Assessment taxpayers within the MTD framework from 2028/29, per the timetable confirmed at Autumn Budget 2025. Until an individual taxpayer moves into MTD ITSA, the current penalty structure — the £100 fixed penalty, daily penalties, and the tax-geared penalty at six and twelve months — continues to apply to their annual return.
What accountants are advising clients
Firms working through this year's overlap are telling clients with an outstanding 2024/25 return to file immediately regardless of ability to pay, since the daily and tax-geared filing penalties accrue independently of the tax owed and a Time to Pay arrangement does not stop them. For clients approaching MTD ITSA mandation, the advice has centred on establishing quarterly bookkeeping habits well before the first live deadline, given that points accumulated from missed quarterly updates carry the same 24-month tail as those from an annual return.
HMRC's guidance on the points-based system, including worked examples for both annual and quarterly filers, is published alongside its wider MTD ITSA collection on GOV.UK. The department has said further detail on penalty appeals and reasonable excuse provisions under the new regime will follow ahead of the 2027 mandation deadline.